Tax Analysts Blog

New AHCA CBO Report Changes Very Little

Posted on May 26, 2017

The Congressional Budget Office released its updated analysis of the American Health Care Act (AHCA), giving Democrats new ammunition to attack the bill and making some Republicans even more nervous about the consequences of healthcare reform in the 2018 midterm elections. But given what the CBO said about the bill, it’s clear that very little has changed since the first report in March.

In its first report, the CBO said that 24 million people might be left without insurance coverage. The May 24 update changed that number to 23 million. The March estimate said that the deficit would be reduced by about $150 billion over 10 years, while the May report lowered the savings to $119 billion. The substance of the CBO analysis remained almost the same.

But that didn’t stop left-leaning members of the media and Democrats from jumping all over the new report and calling for the AHCA to be scrapped. The 23 million number was everywhere in the press, as though it was a surprise.  Democratic lawmakers also repeated calls for Republicans to fix the Affordable Care Act instead of proceeding with “Trumpcare.” 

Republicans aren’t going to “fix” Obamacare. They have no ideological or political reason to do so. The GOP retook the House in 2010 primarily on the strength of the voters’ anger over the ACA. They retook the Senate in 2014 and held it in 2016 with ACA repeal at the top of their campaign agendas. It is disingenuous for Democrats and commentators to act as though tweaking the ACA to extend its lifespan is a viable policy alternative. If that is what voters wanted, then why did they vote Republican to begin with?

Republicans are much more interested in responding to voter anger over the costs of healthcare than they are in ensuring 100 percent of Americans have healthcare. The GOP hopes that the AHCA brings down premiums and gives people more choice in what types of plans they can buy. And it almost certainly will do that. It is also true that the AHCA will make it much more difficult for many people to find health insurance. There is no magic bullet that can lower costs and expand coverage (other than, perhaps, single-payer, but neither party is likely to support that soon). 

 So, keeping in mind that the GOP isn’t likely to pass an ACA technical corrections act, what does the CBO report say about the fate of the Obamacare taxes? The AHCA is a $662 billion tax cut, according to the CBO. The AHCA eliminates the 3.8 percent net investment income tax (which primarily affects high-wealth taxpayers with capital gains). It also repeals the ACA’s fees for insurance providers and reduces the floor for the healthcare deduction to 5.8 percent of gross income. Smaller items include a repeal of the tanning booth tax and the medical device excise tax. The controversial tax on so-called Cadillac insurance plans would remain, but its effective date would once again be postponed. (As an aside, there is very little chance this tax will ever go into effect, even if Democrats return to power.)

The Senate will heavily modify the AHCA. They will probably change the House’s changes to preexisting conditions. Some GOP senators have expressed support for keeping ACA pay-fors, but that is unlikely given the stance of Finance Committee Chair Orrin Hatch and Majority Leader Mitch McConnell.

The CBO report is important because it now allows the Senate to proceed and make the AHCA comply with reconciliation. But nothing in the report is likely to change how voters perceive the ACA or how Republicans proceed on healthcare reform.

Read Comments (9)

Mike55May 30, 2017

Great article. "Disingenuous" is a good way to describe the ACHA rhetoric coming from both parties. Each understands that meaningful sacrifices are required to craft rational healthcare policy, but neither is ready to admit that to their constituents just yet.

When it comes to public education we understand the need for sacrifices and chose them decades ago: there's no right to self-directed public education, quantity is artificially restricted to a sub-optimal level, and costs are very high. The upside is that public education is both high quality and universal. We vehemently debate whether these were/are the right trade-offs, but at least we collectively understand trade-offs are required.

For some reason U.S. voters do not understand the need for trade-offs when it comes to healthcare. The average voter seems to think it's possible to simultaneously ensure everyone: is fully covered, gets to pick their own doctors (who must be outstanding and have cutting edge equipment of course), receives as many treatments as they deem necessary when they deem them necessary, and pays minimal costs. Some Democrats are willing to sacrifice the "minimal costs" part and some Republicans are willing to sacrifice the "universal" part, but only in a superficial way. Until this changes we will not have viable healthcare policy.

Edmund DantesMay 30, 2017

Nice article and comment, no argument from me.

I do wonder, though, why we bother with the charade of the CBO "scoring" legislation when they were so wildly wrong about the ACA? Why don't they lose credibility based upon their past performance?

What would be wrong with Ann Coulter's suggestion of making ordinary health insurance legal again? Letting the free market sort it out? Why does my Obamacare-conforming 2017 health insurance cover nothing I care about, but does cover gender reassignment surgery? And no cap on drug rehabs? We've turned health insurance for ordinary middle class families into a scam.

Mike55May 31, 2017

There is nothing wrong with Coulter's suggestion... in fact it's a very good, non-controversial idea. The problem is that it does nothing to address the pre-existing conditions issue, and thus skirts the hardest part of the entire healthcare reform debate.

Republicans already know what they'd like to do for those WITHOUT pre-existing conditions: free market health insurance, combined with (small) premium subsidies and (reduced) Medicaid as a backstop. So in other words, Coulter's suggestion. Of course free market health insurers will not cover people with pre-existing conditions -- just like one cannot obtain home owner's insurance after their house has already burned down -- so a second element is required in addition to deregulation.

And that second element is where things have been falling apart. Moderate Republicans think we have a moral obligation to help those with pre-existing conditions. Core Republicans fully agree, but don't think we can afford to do so across the board. Both are correct, which is why healthcare reform is such a difficult policy issue. Free market insurance doesn't help with this aspect.

Travis RechJun 1, 2017

"but don't think we can afford to do so across the board. Both are correct,"

We can definitely afford it. We just choose not to. The political will and political priorities of a large number of people don't demand it, so we don't have it. It would either require raising revenue or cutting spending on the military, but either way we COULD afford it if we wanted to.

Mike55Jun 5, 2017

Sure you could buy several years by raising taxes and cutting whatever non-healthcare programs you deem to be least valuable. But that's just a temporary Band-Aid: the arithmetic of paying for healthcare costs that grow at over 5% with revenue that grows at 3% or less must eventually be addressed.

That's why imposing artificial caps on healthcare supply is inevitable. These caps will be incredibly unpopular, hence the political rhetoric from both sides desperate to distract you from the underlying issue. But sadly the principles of compounding growth rates just don't care about anyone's political rhetoric, no matter how eloquent or fiery. There are no short cuts on this issue.

Travis RechJun 7, 2017

Somehow every other country manages to provide better healthcare outcomes for the population, and more cheaply than us, so I don't see this problem as inherently insurmountable.

Mike55Jun 8, 2017

...and all those other countries impose controls on healthcare supply that would be deemed unacceptable by most U.S. voters. There is no country on earth that provides unlimited, self-directed, universal healthcare to a meaningful portion of its population.

I happen to agree that we ought to have universal healthcare. My point is simply that it cannot be provided without heart wrenching trade-offs. To borrow a now well-worn example: it's one thing to say the U.S. wastes too much money on diagnostic tests, but quite another to actually limit the availability of mammograms.

Jeremy ScottJun 9, 2017

Whether universal healthcare is a solution or not is almost beside the point. We are probably further away from a universal healthcare, singe-payer system now than we were in 2009, when President Obama took office. The ACA did a great deal of damage to any kind of support for single payer.

Edmund DantesJun 22, 2017

I'm not so sure about that. The philosophy behind the ACA was "If it ain't broke, fix it 'til it is broke," and it has worked perfectly. I know a surprising number of "conservatives" who now favor "medicare for all."

Annual premiums for family coverage of $20k are working their magic, when coupled with $5k deductibles and loads of routine drugs not being covered.

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